Indian IT firms queue for Japan's outsourcing pie

BANGALORE/TOKYO: Thousands of miles away from Japan, a group of software engineers gather every six months in a southern Indian city to learn the Japanese language, cultural nuances and etiquette.   

The Shimpo programme, conducted by India's third-largest software firm Wipro, in Chennai is an indication of Indian companies' new-found interest in Japan as growing competition and a shortage of manpower boosts outsourcing.   

The total IT outsourcing market in Japan, the world's second-biggest spender on technology after the United States, grew to $15 billion in 2005, up 6.7 per cent from the previous year, International Data Corp (IDC) Japan said in a recent report.   

The market is forecast to grow 5.8 per cent per year through 2010 to 2.34 trillion yen on ramped up IT spending by financial companies as Japan's economy shakes off economic stagnation.   

"The Japanese market is opening up fairly significantly, just like Europe a couple of years back," Virender Aggarwal, senior vice president for Asia Pacific, Middle East, India and Africa at India's number-four software exporter, Satyam Computer Services, said.   

In March, New York-listed Satyam won a deal to manage Nissan Motor Co.'s business applications for the North American market. Wipro, which has around 60 clients in Japan, entered into an agreement with All Nippon Airways in September to support financial applications.   

India's software and back-office services exports to Japan are forecast to rise to $1.5 billion by 2010 from $500 million in the fiscal year 2004-05, according to the latest data available from the National Association of Software and Service Companies.   

With a bulk of Japanese outsourcing contracts flowing into neighbouring China, Indian software companies are rapidly expanding their presence in China to grab a larger share of the business pie.   

In November, Satyam, which already has development centres in Chinese cities of Shanghai and Dalian, launched another facility in Guangzhou for its customers in Japan and Hong Kong.   

"The kind of manufacturing investments that Japan has in China and the number of joint ventures they have has also given them more comfort (to outsource jobs to China)," Aggarwal said.   

"We will continue to service Japan from India but increasingly my feeling is it will be getting done more and more from China."   

Tata Consultancy Services (TCS), Infosys Technologies and Wipro, Satyam's bigger rivals, have also set up operations in China over the last two years, lured by cheaper costs and big business potential.   

"Outsourcing to countries like China, India and Vietnam is likely to keep growing," Yukiharu Yorifuji, senior market analyst at IDC Japan, said, citing a looming skills shortage as Japanese baby-boomers reach retirement age.   

Many Japanese clients are looking at India, where wages for engineers are sharply lower than those in Japan, Yorifuji said.   

In October, TCS, India's largest software exporter, opened a software development centre in the eastern Indian city of Kolkata as it expects demand for outsourcing to grow rapidly in Japan.   

"Our business in the Japan market has been growing steadily for the last three years," TCS' executive vice president, N. Chandrasekaran, said.   

"We expect the growth rate to accelerate in the next 12-24 months time period. We are very, very bullish on that market."